Recovery Takes Hold in Caucasus, Central Asia

Russia's rebound has positive impact on region

Countries should wind down fiscal stimulus and crisis-related measures

Banking sectors still pose risk in some countries

David Owen, Deputy Director of the IMF’s Middle East and Central Asia Department, told a press conference in Almaty, Kazakhstan, that the fiscal stimulus applied by many governments in the region—together with a favorable external environment—had helped spur the recovery from the global crisis. The upturn in Russia’s economy has benefited the region, mainly through trade and remittance channels (see chart), as has the rise in oil prices.

“The outlook for the region is broadly positive, although in some countries it will take time for per capita disposable income to return to pre-2009 levels,” Owen said.

Countries in the Caucasus and Central Asia differ substantially in terms of per capita GDP, which ranges from under $700 in Tajikistan to $7,000 in Kazakhstan. Half of the region’s countries are exporters of oil and gas (Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan), while the others are importers (Armenia, Georgia, the Kyrgyz Republic, and Tajikistan).

Sustained growth for energy exporters

The IMF’s Regional Economic Outlook for the Middle East and Central Asia says that growth in 2010 is expected to be strongest among the region’s oil and gas exporters, with projections ranging from 4½ percent in Azerbaijan to 9½ percent in Turkmenistan (see table). With oil prices expected to remain near $80 per barrel in 2011, these countries should grow at similar rates in 2011.

Among the oil and gas importers, Armenia and Georgia are forecast to grow at 4 percent and 5½ percent, respectively, in 2010, compared with negative growth in 2009. In Tajikistan, growth is estimated at 5½ percent for 2010—about 2 percentage points higher than in 2009. Buoyed by Russia’s recovery, all three countries are projected to grow at 4–5 percent in 2011, the IMF report says.

In the Kyrgyz Republic, political and ethnic turmoil earlier in the year are weighing heavily on this year’s performance. Economic activity is expected to shrink by 3.5 percent in 2010, but bounce back strongly in 2011 and grow by a projected 7 percent.

Inflation across the region as a whole has come down from high pre-crisis levels, and underlying inflationary pressures are expected to remain contained over the next year, the IMF report says. In a few countries, however, headline inflation has been impacted...